In a recent update, SMSF Alliance principal David Busoli said there is a fundamental, industry-wide flaw in the reporting of investment strategy allocations against benchmarks.
“Fund investments, including their underlying sector investment allocations, are typically determined on different software to that used to administer the fund,” he said.
“They may have been determined according to the fund’s investment strategy but, as the underlying asset sector allocations within the administrator’s software are often not the same, the reports that the fund’s auditor accesses may well show a significant variation to the investment strategy.”
Mr Busoli noted this is an obvious issue for manually entered assets, such as shares in a private company, but often includes assets with data fed sector information as well.
The result is an audit query regarding a seeming divergence from the strategy.
Typical problems include investments with no underlying asset sectors at all and having no value such as $0 unit/share price, according to Mr Busoli. It can also include investments in a negative sector or an “unknown” sector designation.
“The presence of gearing may also cause issues depending on how it is recorded by the administrator,” Mr Busoli added.
“It is not uncommon to find a borrowing classed as a negative percentage ‘asset’ which the administration software caters for by recording the total of the other actual assets at more than 100 per cent. This obviously skews any benchmark asset allocation reporting.”
This comes as SMSF Alliance had also recently released a comparison tool that identifies assets that may require attention, accompanied by a simple process for users to advise of the discrepancy in the investment strategy.
Let’s be honest, the generic old 1 page minute / investment strategy to 90% of SMSF funds had done by their accountants whilst doing the accounts was totally useless.
Now it’s just a long winded version of the same useless rubbish, 15 pages of generic rubbish now.
Oh and a mention of Assets & if you want benchmarks, that you set 30% either side of the intended allocation.
It is an audit only tick box exercise to appease Canberra, in the majority of
times.
Well said, been doing this for years
It is true that you don’t need benchmarks, though they are standard software inclusions, but you do need to know what asset classes you are using and that is what I’m referring to. Just listing every asset class that’s possible without linking them to those you are using is not acceptable.
Makes sense David.
Simple fix. Do not put benchmark ranges in the strategy. A list of the asset classes is fine. There is nothing in SISA that requires asset allocation benchmarks.
Hear hear. Been doing that for years